Market Report.

πŸ“ˆ The US economy is growing 14 times faster than the German economy. The data presented yesterday on the GDP growth rate for the third quarter of both countries show notable differences. The US, despite a lower than expected figure, shows a growth of 2.8% in this quarter. Compared to Germany’s quarterly growth of 0.2%, it is clear that the situation is very different.

πŸ‡©πŸ‡ͺ But not all the data are bad for Germany. Its growth rate of 0.2% was above predictions of a contraction of -0.1%. In addition, it reports an inflation rate for the month of October of 0.4% versus the expected 0.2%, bringing annualised inflation to 2%. German retail sales surprised on the upside in September, continuing a positive trend since June with an increase of 1.2% against a forecast of a 0.5% decline.

πŸ‡ͺπŸ‡Ί The Euro Area’s annual inflation rate increased to 2% in October 2024 from 1.7% in September, the lowest since April 2021, and somewhat higher than 1.9% predictions, according to early assessments. While the annual core inflation rate, which does not include the cost of food, energy, alcohol, or tobacco, remained steady at 2.7%, it was higher than the 2.6% predicted but the lowest since February 2022. The CPI increased by 0.3% from the previous month after declining by 0.1% in September.

πŸ‡«πŸ‡· France’s harmonised inflation rate is higher than expected, growing by 0.3% in September against 0.2% expected, and exceeding the deflation of the previous period with -1.3%.

πŸ‡―πŸ‡΅ Japan, as expected, the BOJ kept short-term rates at 0.25% and projected inflation to move around its 2% target in coming years, showing its commitment to raising rates if recovery is sustained. The BOJ will pay attention to developments in the US economy, financial markets, and how these factors affect Japan’s outlook and risks. Governor Ueda said they need to carefully watch how past Fed rate hikes impact the US economy and prices, with still some uncertainty. Core inflation forecasts for 2025 and 2026 were slightly lowered but risks are tilted upward, and “core-core” inflation is projected to hit 1.9-2.1%. Data showed a moderate recovery as factory output and retail sales rose in September.

πŸ‡¬πŸ‡§ Britain’s new budget plans announced by Finance Minister Rachel Reeves include the biggest tax increases in 30 years and increased spending to repair public services. this could boost short-term economic growth but also raise inflation by 0.5 percentage points to an average of 2.6% next year. Higher expected inflation reduces expectations that the Bank of England will cut interest rates as aggressively over the next year as previously predicted, setting it apart from other central banks like the Fed and ECB. The Bank of England will have to scramble to update its economic forecasts ahead of its interest rate decision next week to incorporate the new budget projections. Some bond prices fell sharply after the budget due to higher rate and inflation expectations. The UK 10-year bond return has risen to an all-time high for the year 2024 and is currently trading above 4.40%.

πŸ“Š The Core PCE Price Index, a key measure of inflation, remained steady at 2.7% YoY, matching the previous month and slightly exceeding the forecast of 2.6%. On a monthly basis, the Core PCE Price Index rose by 0.3%, slightly higher than the expected 0.27%, indicating persistent inflationary pressures. The broader PCE Price Index also aligned with expectations, showing 2.1% YoY growth, down from a revised 2.3%, and 0.2% MoM, consistent with forecasts.

πŸ’Ό The labor market remains robust. Initial jobless claims came in at 216,000, lower than the forecast of 230,000, suggesting fewer layoffs than anticipated. Similarly, continued jobless claims declined to 1.862 million, below both the forecast and the previous month’s figures.

πŸ’° Additionally, personal income grew by 0.3% MoM, as expected, while consumer spending rose by a solid 0.5%, reflecting strong household consumption. Employment costs moderated to 0.8%, slightly below the forecast of 0.9%, indicating some easing in wage pressures

πŸ–₯️ Both Microsoft and Meta reported strong Q3 revenue growth and profit improvements above analyst estimates. However, both stocks dipped 3% in after-hours trading. Both companies issued Q4 revenue guidance that was only in line with or slightly below targets, despite heavy capital expenditures. Microsoft and Meta are investing heavily in AI, with Microsoft spending 28% of revenue this year on capex, above its historic 12% average. Meta plans $38-40B in capex this year, around 24% of estimated revenue, higher than its past 19% average. Microsoft said Azure growth of 33% was driven 12% by new AI services. Meta saw boosted user engagement and ad conversion from AI tools. Meta expects “serious” ongoing AI infrastructure investments next year, curbing enthusiasm after a 67% stock rise this year. Microsoft rose more modestly at 15% as investors weary of staggering investment sums want clearer returns.

Market View:

πŸ“ˆ Weak market reaction to Microsoft and Meta’s earnings reports has left US stock markets a little deflated. Mini S&P 500 futures are trading at 4,812.50. Nasdaq futures are down 13,375 points.

πŸ’Έ The dollar has also retreated in recent hours. The DXY index has lost 104 points and EUR/USD is close to 1.09, above 1.0880 at the moment. US bond yields continue to rise, with the 10-year bond reaching a return above 4.30%.

πŸ‡ͺπŸ‡Ί European equities suffer somewhat stronger corrections. DAX 40 futures retreat to 15,265 points. The Eurostoxx also has sharp pullbacks, moving away from 4,500 points and falling to 4,355 points at the moment.

πŸ›’οΈ The spread in the crude oil market between Brent and WTI is starting to close. Congratulations to all who took advantage of the previous reports, as we have been warning of this opportunity since Monday. WTI crude is approaching $70 a barrel, currently trading at $69.30 a barrel. The Brent barrel is steady at $75.90. Gold falls $25/oz after hitting a new record high at $2,000. Bitcoin remains in the $27,000 area, retreating slightly to $26,840 at the moment.

Geopolitics:

🌍Donald Trump rides a rubbish truck less than 24 hours after Joe Biden called his supporters β€˜rubbish’.

🚩 A banner displayed by Russian armed forces after the capture of Selidovo would show the cities conquered and the next to be conquered. Kiev would be among the list of targets for cities to be conquered by Russian forces.

πŸ‡ΊπŸ‡¦ Ukraine has only received 10 per cent of the aid package voted by the US Congress in 2024, Zelensky said. He also said that partners have not provided all the promised air defence systems: β€˜This is not funny,’ he commented.

πŸ‡¬πŸ‡ͺ Viktor OrbΓ‘n congratulated Georgia’s ruling party on its victory in the parliamentary elections and, contrary to the official positioning of Brussels and Washington.

πŸ›‘οΈ According to the WSJ, much of Iran’s S300 defence systems were rendered useless after Israel’s attack a few days ago. However, it appears that this was only a small fraction of Iran’s defence system and given the images, the damage inflicted by Israel appears to have been quite limited.

🌧️ The President of the European Commission, Ursula Von der Leyen, links the tragedy in Valencia, which could leave more than 100 people dead at the moment, to climate change. However, several Spanish politicians and experts pointed out that it is European regulations since 2000 that have forced Spain to dismantle flow barriers and hydroelectric power plants on the grounds of environmental benefits. Spain has suffered similar events in Valencia over the last decades, given its sloping geography. Most recently, the floods of 1959 with more than 300 deaths.